MEXICO CITY—For more than a year, Venezuelans have fretted over how they will fare as their charismatic president, Hugo Chávez, faces dual battles of cancer and a fall election. But Mr. Chávez's fate may pose an even greater cause of concern in another country—Venezuela's Communist ally, Cuba.
In more than a decade of friendship between Mr. Chávez and Cuba's rulers, Venezuela has sent cash and oil subsidies worth billions of dollars a year. Those handouts could come under threat without Mr. Chávez in power to back them—showing how the flip side of Venezuelan largesse is a deep potential Cuban vulnerability.
Enlarge Image
Close
Reuters
Cuban President Raúl Castro, left and Venezuela's President Hugo Chávez met recently in Havana.
In 2010, Venezuela accounted for at least 40% of Cuba's overall trade in goods, up from 27% the year before. That figure was more than the trade levels of the next five countries combined.
Overall, Venezuelan assistance and trade with Cuba accounted for up to 22% of Cuba's annual economic output in 2010, according to Carmelo Mesa-Lago, a professor emeritus at the University of Pittsburgh and an economist who is writing a book about the Cuban economy.
"It's hard to imagine that another country would enter into such a large relationship as this," said Philip Peters, a Cuba analyst at the Lexington Institute, a Virginia-based policy group.
The extreme situation has drawn comparisons to Cuba's relationship with the Soviet Union, which underwrote the Cuban economy for decades until its sudden collapse in 1989. What followed was what Cubans call the "Special Period" of the 1990s, during which the Cuban economy contracted 35% in three years, leading to rationing of food and electricity.
Enlarge Image
Close
Cuba is on more solid footing than it was then. But it still faces the U.S. economic embargo, and economists say the ending of Venezuelan largess would be a massive blow.
"This could be a disaster," Mr. Mesa-Lago said. "If this help stops, industry is paralyzed, transportation is paralyzed—and you'll see the effects in everything from electricity to sugar mills."
Mr. Chávez has long called Fidel Castro, Cuba's retired dictator, a father figure and mentor. For 12 years, the Venezuelan president has propped up the ailing island's economy with generous subsidies. They include roughly 105,000 cut-rate barrels of oil a day—about half of Cuba's energy needs for petroleum, economists believe—and cash payments for a stream of Cuban doctors, sports trainers and teachers who work in Venezuela.
Under the arrangement, Venezuela pays the Cuban government $135,000 a year for each doctor it sends over, 27 times the salary of the average Venezuelan public doctor, Mr. Mesa-Lago estimates. Cuba gets similar payments for sending teachers and sports trainers.
The oil arrangement is also unusual: Not only does Venezuela sell the oil to Cuba at what is believed to be submarket prices, it also extends Cuba 25-year loans at 1% interest—well below the rate of inflation—that Havana uses to foot about half of the bill.
Venezuela is also supporting Cuba through investment. From 2000 to 2011, Venezuela signed deals for 370 investment projects in Cuba for an estimated $11 billion. They included $1.4 billion to renovate an idle refinery in the coastal town of Cienfuegos. The plant, from 1991, used defunct Soviet-era technology and had never operated.
Last year, Venezuela installed an 820-mile fiber-optic cable meant to bring high-speed Internet to Cuba. It still hasn't been put into use.
Aside from several projects from Brazil and China, few other countries have been able to establish a firm foothold in Cuba at all. Economic reforms pledged by President Raúl Castro have focused on changing the domestic economy—allowing for the sale of homes, for example—but have done little to attract outside investors.
As for Mr. Chávez, the president says his health is improving but isn't giving many details. This month he said recent tests after treatments in Cuba and Brazil had "turned out absolutely fine." But many in the U.S. government believe his condition has worsened. Mr. Chávez has surprised critics by appearing on the campaign trail and making plans this weekend to host Iran's President Mahmoud Ahmadinejad, another old ally.
Mr. Chávez's opponent in the election, Henrique Capriles, trails the popular president in the polls. But Mr. Capriles has a handy lead over any of Mr. Chávez's likely successors, polls show. Mr. Capriles hasn't yet taken a position on the Cuban subsidies, although Mr. Chávez's oil handouts to foreign countries are broadly unpopular at home.
Cuba is on better economic footing today than it was two decades ago. Three-quarters of Cuban trade was linked to the Soviet bloc, and the collapse of the Soviet bloc left Cuba's contracts with state companies from East Germany to Bulgaria invalidated almost overnight. Fidel Castro famously urged Cubans to abandon cars for thousands of bicycles he imported.
Since then, Cuba has opened its doors to tourism, which in 2010 was a $2.2 billion industry that accounted for roughly 4% of gross domestic product. The Obama administration recently began allowing relatives of Cubans to send unlimited remittances, which could serve as a lifeline.
Cuba has also made an effort to become an oil producer in its own right, working with Spanish firm Repsol YPF S.A. to drill offshore oil. A platform was erected last year, but the size of the deposits is still unknown. The project suffered a disappointment late last month when Repsol said it would stop looking for oil in Cuba after an exploratory well came up dry and had to be capped and abandoned.
Few analysts think a departure of Mr. Chávez would lead to political revolt in Havana that would threaten the Castros' regime. But it might force Cuba to accelerate free-market reforms. The crisis of the 1990s forced Cuba to adopt limited free-market reforms to survive, including the first licenses for private restaurants. When times got better under Mr. Chávez, Fidel Castro rolled back the reforms.
"If Chávez were to kick the bucket, then the impetus toward reform would probably return because there wouldn't be any other alternative," said Arch Ritter, an economist specializing in Cuba at Carleton University in Ottawa.
A version of this article appeared June 23, 2012, on page A8 in the U.S. edition of The Wall Street Journal, with the headline: For Cuba, Chávez's Health Is a Vital Statistic.
Venezuela, Venezuela ebook download, Hugo ChГЎvez, Fidel Castro, Fidel Castro, Cuba, ChГЎvez, ChГЎvez, oil subsidies, President Mahmoud Ahmadinejad
Online.wsj.com
